Luan Pra bang

I went to a lunch with a speach by The deputy governer of the bank of england on monday. She said

1. House prices have a limited effect on the economy as only a small percentage of people are in danger of negative equity and the only people who suffer are builders.

2. Inflation is more dangerous than House prices and oil prices are driving inflation. If oil does not stabilize then interest will go up irrespective of the house price situation.

3. The bank of Englands MPC and herself in particular have done a great job and its not their fault they did not predict high fuel prices.

4. We are in a world wide slow down and our economic problems are due to that not anything local.

5.Oil prices are expected to stay high untill oil companies can increase production to match increased demand from India and China.

PeteBrant

The only people that suffer are builders?

So, for those people that have thier properties repossessed, it is a pain free experience?

And obviously as the house prices get lower, the number of people in negative equity increases. At the moment it will be fairly small, but it's only going to get bigger.

Makes sense.
How very magmanmous of her

I would say that an economy built on unsustainable debt, coupled with decade long low inflation/low interest rates have contributed.

There's lot of factors affecting the oil price, its not just aquestion of supply and demand. India/china demand has not suddenly gone through the roof in the last 6 months. THere is the weak dollar, the lack of confidence in anything other than commidites to factor in as well.


That's my two-penneth anyway, far be it from me to comment on the points made by the deputy governor of the BoE

Leslie

I agree with what Pete says.

I think that Flash's handling of the economy during the last 10 years or so has been very short sighted. Inflation was kept down and interest rates as well by his overborrowing which encouraged people to get into large debts to make us look and feel to be prospering. At the same time, he was allowing gross overspending on useless items and the institution of an enormously top heavy administration which has done nothing good for the country but has been a terrible drain on our taxes. We are throwing our taxes into supporting all this as well as index linked final salary pensions for all the people who have been hired to work for the government thus effectively buying votes at the same time.

Now the world is slipping into recession, we have no backup to get us through it as we should have had. No wonder they are casting around to raising even more stealth taxes to cover their backsides. No wonder he was forced at one time to flog off half our nation's gold reserves at the lowest price that was available at the time!

I believe we are in for a bad time for some time to come now. It is not helped by the huge levels of sheer incompetence demonstrated by those who are supposed to be running the country. And they have the barefaced cheek to ask for an MP's salary rise of £23K for goodness sake!

i often think our only hope is thet the Queen should dissolve Parliament and give us the chance to start agian from square one!

Les

Coffin Dodger

We're all doooomed

lozgti

The only thing that strikes me about the B of E is that it seems far from independant.

As for her comments about housing not affecting the economy,it basically has been our economy for the last ten years.

The whole reason why have been people spending and borrowing wildly because of a cushion people thought they had with equity in their property

lozgti

Just to add,isn't this lady legging it anyway?

fast bloke

Did anyone happen to ask her how increasing interest rates might help stabilize oil prices?

Petem95

I think the jist of it is increasing interest rates will tackle inflation, which is the consequence of rapidly rising oil prices.

I'd like to see the BoE do their job, and really start ramping up rates to combat inflation - thats what they're tasking with targetting at the end of the day.

greenonedave

Their is no shortfall in oil supply, there is a 4.6 millon barrels spare capacity per day, its purely a speculation driven price hike, The worst problem so far has been an Isreali politicitian who basically said when Iran has the bomb, we will nuke em first !

David Lock

Was the grub any good?

Sounds a bit boring otherwise tbh.

Luan Pra bang

No she was told that she is retiring.

Luan Pra bang

No the food was crap and I couldn't get pissed on the free champagne as I was driving. SHe said lots of other things but basically managed to talk without saying anything. The not being to worried about house prices part scared me.

David Lock

I guess she will be unlikely to worry about negative equity or the bailiffs knocking on the door of her country mansion or holiday apartment

Hoppy

Spot on lozgti, as we and my mother are finding out the hard way trying to sell houses at anything like we believed them to be worth just a few months ago. This crash will be brief (I hope) but painful.

I think that house prices have been artifically inflated, but they are now being atificially deflated by estate agents who have had it so good, and are now desperate to stay in business - at their client's cost, of course. We are now advised to drop our house price by 20% from a valuation just three weeks ago They can FO!

So we're gonna rent until all this credit crunch and oil price nonsense has settled back to a realistic level. That will not be at a level that we have previously enjoyed but anyone who has watched movements in the world economy over recent times should have seen this coming. That includes me, but also a government run by King Kanute.

Richard.

PS Edited to add, I guess estate agents are hardly the souce of blame - just victims like the rest of us. It's the lack of lending from banks that is really hurting, and I blame the government for that.

fast bloke

So can you explain how the BoE increasing rates will control the amount of oil that China and India are using, and how it will stop big speculators in Brazil buying up oil futures at $145.00 on the basis that they might sell it at $200.00 by the end of the year?

Ultimately, oil at $130.00 a barrel is unsustainable. China has a subsidy where the state pays producers the difference between production cost and actual cost. This is a finite pot of money, so within the next 6-7 months, producers in China will have to pay full whack. USA and UK can't afford to continue to pay current prices. China won't be able to afford to pay current prices, India works on a different economic model, so it is difficult to establish what will happen to their economy, but none of this even factors into the speculation that you might make 30% on an investment in 4 months. BoE could raise interest rates to 50% and oil prices wouldn't even wobble.


However - rapidly increasing oil prices have the same effect on the economy as increased interest rates..... they take spending power away from the consumer. If you want to hit the consumer twice, be careful you don't knock him out completely, because without him you won't have an economy to control.

p.s. - When the pot dries up for subsidies in the far east and oil prices start to plummet, we will have short term deflation..... what do you reckon the BoE will do then?

PeteBrant

You know what's going to happen. Fuel will get taken out of the CPI basket, problem solved

fast bloke

It isn't just consumer fuel that is the problem. Take your toast this morning as an example. The grain needs to be harvested, (by a big diesel machine), taken to the mill, (in a big diesel lorry), refined, (by another big diesel machine), taken to the bakers, (by a big diesel lorry), cooked, (in a big gas oven), wrapped in a plastic bag (made from oil) and taken to the shop (in a big diesel lorry.) Either someone makes less profit on each of these steps, or the price of bread goes up. From the suppliers own perspective, they need to make more profit to pay to heat their houses, and a little bit extra to pay for the increase in the price of bread..... so inflation goes up. BoE puts up interest rates to curb spending, so all the finance on the machines, lorries and shops required to produce a loaf of bread increases.... so prices have to increase to fund this.... inflation goes up or people start losing jobs. Less employed people to spend money, so margins get a bit tighter, prices need to go up......... ad infinitum

If inflation is caused by people increasing prices to make vast profits, or borrowing to by luxury goods, increasing rates will control inflation without too much economic pain. When the price increase are caused by something which bears no relation to UK interest rates, increasing rates will only make matters worse.


p.s. - They could very well take fuel, food, furniture etc out of the CPI figures, but no-one really believes those figures anyway.... they seem to relate more to the price of an ipod than any real necessities..... Maybe they could use CPIpod as the base measurement

PeteBrant

I think that particular myth is perpetuated by the media. As you probably know, the CPI rate contains a basket with around a thousand good in it. Yes, it has some electrical items in it, but it also has about 100 individual foods.

The CPI is a genuine basis for a measurement of inflation - If it wasn't, then it wouldn't be going up, given that most "luxiries" are staying the same or even reducing in price.

I do think , however, there is a real need for a "cost of living" inflaiton rate. THat is a seperate rate that has the costs of certain foods, gas, electric, coal, rent/mortgage costs, and perhaps oil. The basic stuff yo uneed to survive in Britian.

Luan Pra bang

Any real inflation figure has to include the things people generally have to spend money on. The cost of mortgages/rent, fuel, insurance and council tax all have to be included for it to be relevant as these are the things most families cannot avoid paying,
The CPI does not reflect real inflation and most people realse that. If you want real inflation figures you just need to see what percentage of people budgets are spent in each area and I would be quite sure the figures are higher than 3%.

PeteBrant

Rent and fuel are included in the CPI measure. House prices aren't in for a simple reason - If your house rises in value does that affect your cost of living? Of course not.

Indeed, given the house price recession we are in, then this would have a false negative impact on the CPI.

Taxes aren't included in the CPI as a rule, hence it doesn't include council tax - It is supposed ot be a measure of what people are payinmg for goods and services, so you could argue it should include it, since it includes school/university fees but it does include fuel, heating bills etc.

In addition to this, prices in the CPI are "weighted" - The cost of a plasma TV will not carry the same "weight" as the cost of food, for example.


It does reflect a real inflaton measure - Like I said there is an argument for a "cost of existance" rate - But the myth that it is a false measure is just that, a myth.

Luan Pra bang

I never said house prices should be included house prices are different to how much mortgages cost and while they are linked interest has a major impact. I have no respect for an inflation measure that ignores the majority of peoples biggest expenditure.
If the governmnet was so happy with the CPI why do state pensions and benefits change in line with the RPI. Its admitting that the CPI is wrong and the RPI gives a more realistic figure.

Hoppy

Good posts LPB The government is fiddling the figures, as usual, in order to cover up a major financial crisis. Of course the cost of mortgages should be taken into account - it's the biggest part of most peoples' cost of living. The value of your house is (almost) irrelevant but the the cost of your mortgage goes straight out of your pocket.

I hope this is a temprarary blip (he said with little justification) but the short-term pain will cripple those on the brink of mortgage death and will hit consumer spending hard. Do we really need Tescos to bring the government to its senes FFS

Richard.

mart360

Just played around with some figures

example


scooby Fred earns 10K a year

he pays his tax & ni to the govstapo £1498 pa

this leaves him £8502 PA

or £163 per week.

he fuels his car £63 (gulp) and pays tax and duty of £43.47

He goes out for a meal with his wife £30 and pays another tax of £5.25

He pays his car insurance installment £12 and pays more tax £.60

He goes shopping and gets clobbered £50 and even more tax £8.75


so from his wage of £163 after tax and NI he gets hit for another £58 in taxes, just for living

i gave up after this, we're just being bled dry

amrt

rik1471

why can't oil be sold in a stronger currency like the Euro?

Klaatu

The Bank of England, the sole responsible organisation for the 300 or so years of interest bearing debt we all pay. No wealth is created for those that pay in to this "cycle".

scoobynutta555

If that is an accurate reflection of her speech then we're truely screwed. What kind of morons are there now in the BOE? Did she happen to mention the fiasco surrounding the Northern Rock mess and the BOE's blundering role in it all?

Luan Pra bang

No mention of northern rock. She cannot publicly say anything deemed political though and northern rock is definately a political issue now.

Iwan

You could have had a pint of coke instead of champagne...

Luan Pra bang

I cannot imagine what kind of weirdo would actually drink a pint of coke. It would do your body less damage to drink a pint of stella/fosters/any other chav drink.

fast bloke

Sure you can - last week you posted that you milked these suckers who prefered not to get pissed and kill people on the way home........ anyway - how come a barman has been granted such an audience?